Italy to Get $4.4 Billion in Proceeds From Tax Amnesty
ROME—The Italian government will pocket over €4 billion ($4.4 billion) in proceeds from a tax amnesty it launched as part of a broad crack down on Italian money stashed abroad.
The additional money will be a boon for the government, as it seeks to meet its budget targets amid a new slowdown in growth in the eurozone’s third-largest economy. However, doubts remain as to whether the amnesty will mark a real change in a country where tax evasion remains a scourge.
The government of Prime Minister Matteo Renzi has sought a fresh approach in Rome’s perennial battle against tax evasion, launching late last year the so-called voluntary disclosure program. The amnesty—which was launched last December and closed at the end of November—was presented as the last chance for tax-dodgers to declare income and taxable assets hidden abroad.
“The voluntary disclosure changes the relationship between the taxpayers and the state,” said Deputy Finance Minister Luigi Casero at a news conference Wednesday. “Many were skeptical when we launched it, but results in numbers and participation proved them wrong.”
While previous governments have used tax amnesties as a way to bring back the billions Italians have hidden abroad, the Renzi government piled on extra pressure by sealing a number of deals to exchange tax information with offshore centers long popular with Italians—most notably Switzerland, but also Monaco, San Marino, Liechtenstein and the Vatican. At the same time, those who didn’t use the amnesty to bring the money back risk eight years in jail if they are caught, under a new money-laundering clause similar to one already used in the U.S. and other countries.
On Wednesday, the Italian Treasury said about €60 billion in undeclared assets came clean, yielding €4 billion in taxes on the hidden funds and penalties. Around 70% of these funds were stashed in Switzerland, followed by Monaco and the Bahamas. Just over one fourth of the total sum hidden abroad will be repatriated to Italy. The amnesty allowed Italians to keep the money abroad as long as it was declared at home.
“The amount raised represents a success for the government,” said Paolo Bernasconi, a Swiss tax lawyer based in Lugano, in the Swiss-Italian region of Ticino, where many Italians historically stashed their money.
Nonetheless, academics and policy makers reckon that Italians have tens of billions still hidden outside of Italy.
In other efforts to cajole Italians to pay taxes, authorities have also begun preparing pre-filled tax declarations for all taxpayers except the self-employed. It also started to conduct fewer but more targeted audits and plans to simplify the tax code. Big companies, which have long complained of unnecessarily aggressive audits, will also get clearer rulings on their tax planning.
The government’s push against tax evasion is bearing some fruit, but it is still far from containing the problem. In October, Rossella Orlandi, head of Italy’s tax authority, said Italy had recouped only €14 billion, or 16% of the estimated tax evaded last year. The amount of recovered tax had already tripled from 2006 to 2013 to €13 billion.
However, the amount of unpaid tax discovered by the tax authority declined by 1.6% for the first 10 months of this year, compared with same period last year.
Ms. Orlandi said a new approach is needed. “We need to turn around the way we fight tax evasion, focusing on prevention” she said at the news conference. “That’s the only way we can be more effective, because afterward it is very difficult to get a hold of the money.”
The amnesty’s proceeds will be a breath of fresh air for Mr. Renzi, who has bet on an expansive budget, including €3.6 billion in tax cuts, to boost a timid recovery and support demand. The pace of recovery, however, unexpectedly slowed down in the third quarter, putting at risk the government target of 0.9% growth this year.
Following the Paris terror attacks, the Italian premier has also announced he will spend an additional €2 billion in investments focused on cybersecurity, defense and culture, as part of a wider strategy to combat terrorism.